Should there be a capital gains tax?

The Government is considering removing the ability of rental property investors to claim losses against their taxes.

Here is the latest selection of Your Views:

Whangarei
I think there should definitely not be a capital gains tax on property (unless trading, developing, building - as currently covered under existing laws). Don't let this government impose any more taxes. Once it is in place, it will never be removed. Even when property is not in the headlines, we will be stuck with a new tax. Look at history, governments have said before that they need to introduce a tax for many reasons, e.g. to fund a war & after the war has finished, do they remove the tax? No. Politicians are not to be trusted with your money. I am better at deciding what to do with my money than the government. They already have more income from taxes than they need, but do they give tax cuts? No, they promise them one year and break the promise the next - as Dr. Cullen just did. Say no to Capital Gains taxes!

Robert Leivers
CGT: yes, possibly. But I really shouldn't worry too much - you're doing quite a good job of killing your economy as it is. Those nasty migrants that so trouble Winston Peters have probably seen better times ahead in Australia, just as the Kiwis are doing. We certainly would be very wary of investing heavily in NZ when the Kiwi$ could reverse by 20c if the marketeers so decide. We certainly wouldn't want to be blessed with near 10 per cent mortgage rates, and in due course, neither will you. The OCR is already causing grief to your exporters.
No, I feel you're doing quite enough right now to wreck your own international credibility. As long as your politicians continue to react to events 2+ years after they started (house price boom), and can then only argue between themselves, then poor Dr Bollard remains out on a limb with his OCR sledgehammer, and options remain very few. In due course, the currency marketeers will probably resolve the problem for you. Good luck!

Propertyless 30-something
At last someone is sticking up for the huge swathes of us who (despite working hard, just like the baby boomers) can't even get to own one house, let alone two. Bring on capital gains tax, ring fencing rental 'losses', and anything else that brings this market down to levels which allow ordinary NZers to get on the ladder.

Economics 101 (Auckland)
Investors are not the cause of the problem in the property market. Investors make up such a small proportion of property transactions, the large majority of market participants are people trying to buy a house to live in. The major influencers are easy credit, low interest rates, and net migration. Property, like most other things, is purely supply and demand. Putting on a capital gains tax is going to have the exact opposite effect, as experience in the USA and Australia has shown. Sydney house prices went up more than 100 per cent in a short period despite having a capital gains tax. The key difference is that incomes in Australia have increased, whereas in New Zealand they stayed relatively static. If a capital gains tax is implemented a large majority of people just wouldn't put their properties on the market, which would limit supply, and therefore house prices would rise, making the situation worse.

Ljubisa Pavic
First, the CGT already exists, but it is easy for Labour to convince the uneducated people into the opposite for their political gain. Real investors keep their properties much longer than average NZ family owns their first home. Second, all of you jumping on that bandwagon claiming that investors are pricing you out of the market, should be grateful that investors are interested in buying the property at all, and providing the housing stock that you live in. If you halve the number of investors overnight, do you think that the rental market would stay the "tenants" market as it is now? Third, a lot of small investors that would be hit the most with so called "ringfencing" did not invest in properties you'd buy to live in anyway, because those that complain want at least a three bedroom house on the piece of land, and don't even think about cramming into 60sqm two bedroom apartment on 10th floor. Fourth, the impact of negative gearing is overstated. All it does is lessens the loss a bit, depending on your top tax rate. Do you really think that investors losing 10,000 a year will flood the market with their properties because they can't offset $3300 of that loss any more?

Russell George
Re Andrew Kings article, re Aussie Capital Gains Tax: he is not strictly correct. I am a retired Kiwi accountant living in Queensland. The CGT rule here is that if you are not an asset trader and you hold any asset for more than one year then you are entitled to a 50 per cent reduction of your capital gain which is then added to your assessable income in the tax year of sale. I believe that in NZ, property and asset traders - as opposed to those who invest for the long term - are assessed on their gains as assessable income earned in the course of their normal business activities.

Home Owner
Ridiculous. I believe they have tried this a few years back and that caused new house pricing to almost double immediately! Have a look I am sure you will find the info somewhere in archives. Michael Cullen has got no idea of what he is doing, just trying to blame the housing market! This will surely mean that rentals will have to increase to compensate, and with mortgages so high at the moment, where does that leave people already struggling to save for their own home.?

Caroline Meads
No there should not be capital gains as I own a property and the return on investment for substantial equity outlay is 1 per cent after expenses are deducted from rent. Property is a long term investment and we are all reliant on capital gains over time as there is no benefit in the short term for the equity outlay.

Japan
I think they should introduce the tax. Most of the people against it are (of course) owners of investment properties! No bias in their opinions! Why should young NZers never be able to get into their own home because baby-boomers, foreign investors and immigrants are buying up 2nd, 3rd properties and driving the prices up to crazy levels.
The people that moan about the losses they are making on investment properties should be investing somewhere else. Why should people be given tax benefits for owning a bad investment? These people are gaining when they sell because of the huge capital gains. I say tax capital gains and don't let people negative gear their properties! Rental prices might go up but I am sure house prices would fall making it easier for first home buyers to get into the market therefore less demand for rentals. Final question If I buy shares and they go down in value can I claim a tax break? Nothing will happen though because politicians are gutless and would rather buy votes than do what is good for the country!

Kim Ickland
Generally speaking, I am against any taxes. But in this case it is warranted. First, investors have priced many people out of the housing market. Home ownership decreases problems in society like violence, drugs and child abuse. So by investors forcing people to become renters, they have inadvertently caused more crime and therefore cost me more in taxes because more police are needed. I don't think they should be given a tax break for causing a run up in housing prices that has been bad for NZ. Second, the housing market is going to fall through no fault of the government. These crazy investors created the market and they are about to loose huge amounts of money. I don't think it's fair to ask NZ to pay for investing mistakes through tax breaks. You made your bed, lie in it. Third, investors running up the prices of homes is going to cost everyone because in short order many people are going to be "upside down" on their homes loans. This is going to cause defaults on mortgages and hurt a lot of people financially. I don't have sympathy for investors. Taxes are a part of doing business. If you can't afford to pay taxes, stay out of the housing market.

McV (Auckland)
CGT on rentals probably would not be as effective as closing the tax loop hole which rental property investors benefit from at the expense of other tax payers. We might then see an end to the plague of property investment seminars and associated thieves and crooks.

Andy (London)
How blind and gullible are you people? CGT on rental properties? How long do you think it will be until it's on all properties?
If you own rental property it is a business and the mortgage interest is deductible same as a business loan. Shall we remove this from all forms of business and drive more and more companies offshore? How pathetic, selfish, and small minded Kiwis have become. He's got more than me so the government should take it off him and give me free ride. What ever happened to a bit of hard yakka to get ahead? You could move from the cities to buy. I commute two hours each way in London and don't think anything of it. God forbid kiwis have to travel more than five minutes. The whole of NZ has become soft in the belly and head. Cheap houses going in 3rd world countries at the moment. Move and see what a hard life is really like and then you might harden up. I assume these are the same people on the rugby page complaining the ABs aren't hard enough these days?

Thomas (Dublin)
Once and for all (hopefully) - NZ already has a capital gains tax! Anyone who buys and sells a property within 10 years and is in the business of doing this has to pay tax on any gains. That has been the law for some time now. Please get educated people as many of you are just jumping on the band wagon. It is wrong to penalise landlords for negative gearing. Perhaps depreciation charges can be looked at but every other deduction that can go against your salary (to decrease your tax bill) is a real cash expense. The tax situation should be the same on all investments - any time where there are variances that's when you get all kinds of new tax minimisation schemes. Also - the housing situation could be a lot worse. I'm a Kiwi living in Dublin and property prices are probably 50 per cent more again in relation to salaries then in NZ.

Tony Hollis
Just saw Bill English on TV trying to defend having tax breaks for investors in the housing market. We desperately need measures to discourage people from putting money into housing as an investment. We certainly don't want to encourage them. I read a quote recently that the tax system should look like someone designed it deliberately. It certainly needs some serious reform to get to that state! Good on you Michael Cullen for trying to do the right thing.

David (Red Beach)
No to capital gains tax on investment property. Many investment properties are bought brand new and many would never been built if rental investors did not come along. Many like mine due to soaring mortgage rates are running at a $4,000+ loss after a larger tax rebate. If we sell, we also are taxed on all the depreciation we have claimed at out top tax rate. The current system of hitting the speculator buyers who sell within days, weeks or few months of buying at often highly inflated prices is fair. We do not have capital gains on shares, classic cars, art etc. If they bring in capital gains, they will also have to bring in capital losses. Also if they announce they are going ring fence tax loss, a good percentage of rentals will be on the market overnight.

Michelle
Well clearly that Cullen person won't be happy until we are all living in State Housing begging for Govt handouts. Yes we have a rental - just the one - and yes we are able to claim expenses against it as with any other business venture. My husband is a farmer, I work full time and we have 2 young children with not a lot of luxuries and we work our butts off as do a lot of other NZers. But we are self-supporting and hope to be in our retirement. To take another kick in the guts from Labour would make us want to sell the house, give up our jobs and just go on the dole - why not? I'm sure Labour will continue to take from the hard working business people in order to hand out to those 'not quite so hard working' - its what they do best! They'll be changing the laws on all business tax nest no one will able to claim any expenses at all.

Rob
Time to look at lessons learned in other parts of the world, particularly from Europe. Urban sprawl is not what Akl needs. This will lead to increasing rates, pressure on services, and increasing traffic congestion. Urban intensification will lead to more sustainable and economic use of our resources and make high cost investments such as mass public transport much more affordable and convenient whilst reducing our environmental footprint in this beautiful country. The Government should look at ways to motivate and encourage people to diversify their investment portfolio so we become less reliant on housing as a savings plan and put our money in value producing and income generating assets. Lets keep our rural areas looking rural. Also NZ'ers should not be afraid of living in apartments or terrace houses. From personal experience the lifestyle is not too bad and besides - Most of the world are already doing it so why can't we.

James
Finally, the Government is talking some sense. Remove negative gearing now. Stop farting around. Why should the taxpayer support an unprofitable investment and then not tax the gain at the end of it. And stop bringing up Aussie CGT as an example of CGT not working to stop house price growth. Australia has a higher tax on shares than property, so there is still a relative tax advantage to housing. If we introduce CGT here (or at least start enforcing the law properly), there will be a relative disadvantage to housing and this will have an effect. And by the way, just a tip. If banks and real estate agents say something is bad for the country, as a rule of thumb assume it's good for the consumer. They represent a huge and rapidly growing industry that make money out of debt. Don't expect them not to encourage debt to the detriment of the man on the street.

Rachel (Wellington)
How dare they even think of introducing capital gains tax. If you hit property investors we will just pass it on to tenants or pack up and move to Australia (with our money). Yes they have capital gains tax, but they also have nicer weather and more bang for buck!

Valerie (Christchurch)
Yes capital gains tax! Although this should have been done in 2003. Make capital gains tax provisional to the family home and the first rental property owned by ma and pa investors exempt. Tax further properties on an increasing scale. Tax second rental property 15 per cent, third 20 per cent, fourth 25 per cent and 28 per cent the rest. Get some of the foreign investors helping to drive this property boom, like my Taiwanese investor neighbours with 15 rental properties, paying some tax instead of writing it off against tax he should be paying. We need more investment in industry - even things up with capital gains tax and revision of tax advantages.
Keynesian neo-liberal economic policies will eventually see many people unable to live in houses! The state houses have been pounced on by 'entrepreneurs' and it's common knowledge that most social problems of health, poverty, ghettoisation and hopelessness stem from the basic access and affordability of housing. This Government needs to make some tough, unpalatable decisions, that they should have made four years ago. It appears they are governing from election to election at this juncture. Not what this country needs.

Dan
There should be capital gains tax on any investment property for which the principle owner does not reside in for at least two years after purchase.

Mark Burgess
No to capital gains taxes. Firstly, it is usually a punitive measure against the struggle of people to offset the effects of inflation against investment value, growth and already low returns. Secondly, the NZ economy is so business unfriendly that the types of investment where government tries to drive capital through capital gains taxes is unsuitable for many small investors, and those saving their nest egg for retirement. The share market is riddled with "legal" insider trading, and is too small to be equitable. Other investments, such as unit trusts, have high management fees, uncertain returns (Bank ones failing to cover inflation year after year after year). Small business compliance costs, difficulty of competition against corporates who have the big stick to wield, and pay less tax relative to true earnings, all these things make it difficult for the moderately wealthy to place money in a safe investment with some cash return and some inflation-protected growth such as rental property. It is an anachronism of the NZ economy that we NEED the residential rental sector as a valid investment path in the form as it currently exists.

Alan
Ridiculous. Its already hard enough being a landlord dealing with tenants which destroy your property, and don't pay rent, and now Michael Cullen wants take away the only real advantage of renting out a property. Surely that means rentals will have to increase to compensate, and with mortgages so high at the moment, where does that leave people already struggling to save for their own home.

Deborah East
Countries with capital gains tax have a higher rate of house price increase than we do. It is not the answer to rising house prices. It is also inequitable to put it on rental property but not on shares, paintings, antiques, and other investments. The housing market is overheated because there is a shortage of basic properties. If landlords are squeezed out of the market, there will be an even greater shortage of rental properties and rents will go up. Builders can make better profits building luxury homes and apartments than basic ones, and our political environment makes it unfeasible for the government to try to make private builders build something they make less profit on. The only solution is for the Government to build lots more state houses, but allow tenants to buy them, thereby causing a slight increase of basic homes coming onto the market over time and relieving the current shortage.

Peter (Blockhouse Bay)
This could just be another rattling of sabres to get the market to slow. Imagine they did either, introduce a capital gains tax or remove the tax offsetting, what would happen? A flood of houses onto the market, a pretty large and sudden drop in house prices, and a huge number of voters distressed by the sudden drop in their house values. And they want re-elected? Also consider that this would likely lead to higher rents (possibly considerably higher) as landlords have to pass on the full cost of owning a rental property, and you start to wonder who, apart from the Inland Revenue (who have said it shouldn't go ahead), would benefit from this? It is also worth remembering that the current boom is being driven partly by people borrowing against their house value increase and these people would be hit hard if their house value suddenly dropped. As long as National don't get behind this they will, without doubt, be the next government if this goes ahead.

David
To impose a Capital Gains tax would penalise those who have worked and saved hard and have also sacrificed luxuries to ensure they had sufficient for their retirement. For most home owners their home is their retirement fund. The introduction of such a tax would discourage people from buying their own home, the money saved from not having mortgage will invariably be flitted away on simple luxuries and we'll end up with another generation(s) of superannuates dependant on government handouts. The message is "spend now and enjoy or save and be penalised!"

Anne Gibson
You've got the wrong question with that story. You should ask: should the Government axe ring-fencing which allows landlords to claim tax deductions on their wages and salaries for the expenses of owning their rental properties?

Jeni the best
Nope to a capital gains tax. We are so over taxed in this country that one more tax will kill off average people like me who live on one wage (not two as no partner contributes) and I just manage to pay my mortgage and save for retirement. I have just bought a half-share in a holiday home and hopefully when I sell my share in about 10 or more years so I will have some dosh to retire on. A capital gains tax will leave me reliant on the government for retirement funds. There must be lots more people like me, so leave us alone I say or lower the tax rate so I can save more or have more choices in life. Oh and no, I don't earn huge money, I just limit my treats.

Jason
If property investors get hit in the pocket, eventually those losses will be passed on to tenants. This in turn drives up rents and the cost of living. How many people out there rely on a accommodation supplement or similar type of benefit? A greater percentage of the population will claim benefits, meaning the government pays out more. Nobody wins, in fact more every day New Zealanders will find it harder to survive.

Chris (Auckland)
I think a capital gains tax could be considered in NZ, but should be applicable just for the first few years you buy your property (main residence should be excluded). For example in Europe, some countries like France apply capital gain tax on property for the first 5 years your own the property. If you keep the property for over 5 years the capital gains does not apply anymore. That is very good to stop speculation on property investment and at that same time does not penalise people who genuinely invest for their future as a long-term property investor. Also, this tax does not apply to the principal residence, but to all others. I think NZ should have the same tax to slow the speculation on housing. But I am totally opposed to a flat capital gain tax applied to all type of property & for all the time, like in Ireland for example. This is just an other way to tax people more, which NZ do not need, with such a large government surplus.

Robert Simms
If you have an investment in shares in NZ listed companies & end up paying too much tax (they call it imputation credits but its tax by another name), then IRD will not refund it. How unfair is that?

Mr. Nobody again
CGT - awesome idea. Let's give the Government lots more of our money! Property prices are going to crash? Ha! Sure prices might dip a bit, just like the NZD with the Government's intervention (that worked well). Get real people. Do you honestly think that the market is going to 'crash' to a point where a three bed villa in Ponsonby is going to cost 250K? So how about instead of driving your 'pimpin ride', having your HD ready 50-inch plasma & spending $200+ on a good night out just pull your heads in! As a young couple in our mid-20's we have just purchased our second house on a combined income of less the 85K. We started by doing this crazy thing I heard about called 'saving' (I think I spelt it right). We achieved this by doing without some of the for-mentioned luxury items, hey, we coped with a TV that didn't take up an entire wall, and do you know, they sell food in a supermarket, that's right I know it's hard to read the cooking instructions, but it works out cheaper then eating out every night. Moral of this view get over it, stop moaning about how tough it is and start with the basics. P.S. Your first house doesn't have to be a three bedroom villa in 'city fringe' you know?

Paul
Should there be a capital gains tax? Absolutely! If someone is making a profit, then like everything else it should be taxed. There should be no free rides. However, will this happen? Highly unlikely. Remember it is the politicians who will decide and as most of them own multiple investment properties (even those who peddle the 'poor' tag - yes the Greens!). Do you really think they will enact a tax that will disadvantage themselves? Remember, these are the same people that put up their own salaries in a blink of an eye. It is a clear trend that they favour decisions that are in there interest and not the common good of the country. And we are foolish to elect them! Go figure.

RJ from Palmy
Capital gains tax - no way. Dr Cullen would be better off introducing tax breaks for private savings of all types, medical insurance etc, then maybe the average Kiwi would save.

Len Wilsher
I hope that the Government is also considering to supplement the shortfall of rental accommodation that this will create. There are already investors in the market that are marginal. If the rules are changed along with the rising interest rates this may force the marginal investor from the market, creating a shortfall in the rental property availability. Thus forcing up rents, for those who can least afford it.
The slight downturn in the housing price that may be resultant will only benefit those of us, who are already well established and ready for such a splendid opportunity to increase our port folios.

Keith D
If a capital gains tax was introduced we would be even more over-taxed than we are now. The Government is becoming ever more greedy and stupid as time goes on, in my opinion. The only positive thing I see with a capital gains tax would be that investors would look at the sharemarket more than property and I think this is desperately needed. The only problem is the Mr Cullen has already killed the sharemarket investment idea by introducing tax on any sharemarket investments over $50,000. This is truly stupid. How is one to fund their retirement? I say? Move your $50,000+ investments offshore like I did!

Shaughn Prestidge
It's about time they consider stopping housing investors from claiming losses on their rental properties against their personal incomes. I have been along to plenty of property seminars by various real estate company and all of them promote this claiming losses against the tax man as the way to go. This is one of their key selling points to get every man and his dog into buying rental properties. This will certainly help stop the property boom as it will force a lot of people mortgaged up to the max to sell some of their properties, creating a bigger supply of houses on the market and pushing house prices down.

Tony
Many people who do have rentals are trying to generate income for their retirement rather than rely on the government? Now they want to take more.

Alan Wilkinson
Like most NZ economic discussion, this one is depressingly uninformed and misinformed. Since there is already a capital gains tax on property purchased for resale the net impact of this proposal seems to be to halve the amount of tax payable. Even if it did increase the tax take on housing, the direct impact would likely be to drive up the cost of housing rather than reduce it as investors seek compensation for the tax. So much the worse for first home buyers and for renters. And if it did somehow miraculously reduce the cost of housing, long-term investors would simply harvest the bonanza as fast as they could. As always, the provision of cheap, quality goods and services should be left to the market. Government intervention invariably raises the price and lowers the quality affordable for a given price. So it has already in housing. The solution is to reduce the bureaucratic obstacles to the provision of land and buildings for housing. Any other solution is simply snake-oil peddled by con-men and swallowed by the gullible.

O McShane (Kaiwaka)
Housing in most Australian cities is even less affordable than here. All the states of the US have the same taxation and interest framework - their mortgages are actually tax deductible. Many states have severely unaffordable housing as we do in Auckland and Melbourne. But fifty markets in the US and Canada have affordable housing, i.e. the median house price is no more than three times median household income. Many of these cities are much larger and faster growing than Auckland and have more migrants. What makes the difference is their planning strategy. Wherever you have Growth Management with MULs etc, the housing is unaffordable. Where you don't, the housing is affordable. People are now migrating to the affordable markets.

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